Introduction: Biocon is India's largest Biotechnology Company with presence in biopharmaceuticals, enzymes, custom and clinical research. It started as an enzymes manufacturer and leveraged its expertise in fermentation to evolve into an integrated bio-pharmaceutical company with strengths in microbial techniques, manufacturing and marketing. The company has two subsidiaries, Syngene and Clinigene, which are involved in custom research and clinical research respectively to global pharma majors. Its subsidiary Syngene provides custom research services in the areas of synthetic chemistry and molecular biology. In Sept 2006, Biocon launched BIOMAB EGFR, a monoclonal antibody for head and neck. These subsidiaries contribute over 16.5% to the total consolidated revenues. Biocon came out with an IPO in March, 2004. The price band was set at Rs.270—Rs.315 per equity share. The company's bio-pharmaceutical products comprise anti-diabetic agents, anti-hypertensive agents, anti-inflammatory agents, anti-oxidants, cardiovascular agents, digestive aid enzymes, haemostatic agents, hepatoprotective agents, immuno-suppressants and nutraceuticals. Shareholding Pattern: The promoters hold a whopping 60.9% while the general public hold 39.1 %. Among the non-promoters, HDFC Trustee Company Ltd-HDFC eqt Fund, HDFC Trustee Com Ltd Long Ternm & FID Funds Mauritius Ltd hold 1.77%, 1.21% and 2.35% in the company. Financials: The company came out with good set of Consolidated Results for the December, 2007 quarter. The total incomes of the company during the period was to R194.2 Cr against Rs.214.01 Cr in the same period previous year. The net profit of the company for Q3FY08 came out to be Rs.284.04 Cr Cr as against Rs.47.57 Cr in the same period previous year. The EPS for Q3FY08 is Rs.29.39 against Rs.4.93 in the same period Previous year. This shows a marked improved in the fundamentals. Its consolidated top line is expected to grow at a CAGR of 15% over FY07-09E on the back of a 40% CAGR in custom research outsourcing business.
With a stable outlook on the pricing front in the statin business, the company's move up to the value chain to formulations in less competitive and niche therapeutic segments, and increasing revenue contribution of custom research business, its operating margins are expected to improve to over 30% in FY09E from the current 29%. Rising margins at operating level and improving revenue contribution from the CRO business are likely to result in consolidated bottom line growing at at a CAGR of 22% over FY07-09E. Triggers:
- Biocon Ltd and Abraxis BioScience, Inc., had announced the approval to market ABRAXANE® for Injectable Suspension (paclitaxel protein-bound particles for Injectable suspension) (albumin-bound) in India for the treatment of breast cancer by the country's Drug Controller General. Commercial introduction of ABRAXANE in the Indian market is expected in early 2008 following the completion of the appropriate importation certifications.
- Biocon sold its Enzymes business vertical to Novozymes South Asia Pvt Ltd., a wholly owned subsidiary of Novozymes A/s of Denmark for USD 115 million. The post tax proceeds of this divestment will enable Biocon to strategically focus on its core bio-pharmaceuticals business as well as consider key acquisition opportunities to move up the value chain. This divestment will contribute a one time exceptional net gain this fiscal. The company plans to utilize the cash generated from the sale of the business for inorganic growth opportunity.
- Biocon is an integrated payer in biotechnology focused on the development of biopharmaceuticals. The company delivers products and solutions to partners and customers in over 50 countries.
- Biocon Ltd’s Rs 400-crore expansion plan spread over three years is near completion. It is also planning a production facility for Biocon Pharmaceuticals - a joint venture with a Cuban biotechnology company.
- The company is changing product mix to boost core business. Biocon's exposure to the vagaries of statin business is expected to decline with its changing product mix and rapid growth in the newly added products such as insulin. Moreover, with launch of BIOMAB and INSUGEN, the company is gradually moving up in the value chain by shifting its focus towards formulations. It already has a formidable presence in Indian biosimilar space and the niche therapeutic segments of nephrology and oncology. It has a good future prospects in its discovery focused R&D, where it has two monoclonal antibodies related to oncology and rheumatoid arthritis along with the oral insulin. The revenues from the biosimilars and formulations are expected to grow at a CAGR of around 20%--25% over FY07-09E.
- The company’s Customs & clinical research is to add more value to both its top and bottomlines. Biocon's custom research outsourcing is expected to grow at a CAGR of over 40% during FY07-09E. As per Frost and Sullivan estimates, Asian contract research outsourcing (CRO) market will grow at a CAGR of over 13.50% to $2 billion in 2010 from $1.2 billion in 2006 indicating a strong growth momentum. Biocon's presence in CRO business is through two companies - Syngene and Clinigene. Syngene provides contract research while Clinigene focuses on Clinical research. Syngene is a leading global custom research service provider and is providing services to external customers from few years. It has over 50 clients, including 6 of the top 10 global pharma companies as its customers. It contributes almost 90% of Biocon's CRO businesses. Syngege provides a broad range of services, which enables it to participate in drug development process from discovery to supply of development compounds. Recently, Bristol-Myers Squibb entered into a long-term contract with it to set up a new research facility to house more than 400 scientists. This will further improve its capabilities in medicinal chemistry, biology, drug metabolism and pharmaceutical development. Syngene has a strong knowledge base with over 700 scientists. Clinigene started operations for external customers only couple of years back. It provides clinical research services. With demand for outsourced research expected to grow exponentially, the company has expanded its operations into a new 60,000 sq ft facility. This facility will house a new unit for conduct of BE/BA and Phase I studies and coordinate Phase II to Phase IV Clinical Trials for a large number of global pharma and biotech companies. These are very significant developments in the company.
- The Biologics Price Competition and Innovation Act aims to create a pathway for the approval of follow-on biologics. The bill proposes a 12-year data exclusivity period for innovators and a one-year exclusivity for biosimilars if a limited clinical trials has been done on the biosimilars. As the exclusivity period will be effective only after the clinical trials, the cost incurred on conducting trials can be a negative. Also, the 12-year period for data exclusivity may be a negative. But if the company gets a one-year exclusivity for the biosimilar, it is a positive for companies producing biosimilars.
Concerns: Biocon generates over 55% of its revenue from the export markets. The appreciating rupee will definitely has negative impact on both the top and bottom lines. The generics industry is subject to patent litigations and regulatory issues. Such challenges or delay in receipt of regulatory approvals could delay its product launch in key markets. Further, increased competition for various companies for the same product may increase pricing pressure resulting in pressure on margins and profits. Moreover, the skewed pharma policy of the present government in the name of cheap drugs for poor could shrink the margin of the essential drugs. Conclusion: Considering the above mentioned points the scrip can be purchased only on declines, in case of a market correction. The scrip could be purchased in a staggered way in this mad correction. The motive behind recommending Biocon Ltd is that if the market goes for further correction, then this is a must buy scrip for everyone, like I mentioned for Suzlon Energy Ltd, Radhe Developers Ltd, BSEL Infrastructure Realty, Sujana Metal Products Ltd, Noida Toll Bridge Ltd, Jamna Auto Industrie Ltd, Jai Parabolic Springs Ltd etc. Bombay and Baroda Circles have pegged the target at Rs.1000 within 12 months. But if the rupee continues to appreciate, it could go back to the price from where it started.
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